Several years ago, the end seemed near for one of Hong Kong’s biggest international music and movie retailers. But a last minute purchase by Hong Kong’s AID Partners Capital gave the struggling brand new life. Now, not only is HMV relevant again, but they’re looking to expand with a new flagship store in bustling Causeway Bay
By Leon Lee
Two short years ago, things were not looking good for HMV, the eminent 92-year-old British music and DVD retailer. The company entered administration and were on the verge of bankruptcy in January of 2013, prompting many to worry about what would become of the six stores in Hong Kong.
The situation took a turn for the better when Chicago financial house, Hilco Global, agreed to take up the debt of the company. In Match of that year, Hong Kong private equity firm AID Partners Capital acquired HMV’s existing businesses in Hong Kong and Singapore along with the operating licenses for china, thus securing ownership of one of the city’s most popular music and movie stores.
A New Beginning
After the acquisition, new owner and principal partner at AID, Kelvin Wu, told the South China Morning Post that he believed HMV can evolve beyond a music store and envision the company to provide customers with more than just CDs and DVDs.
Fast forward to September 2014, when the brand revealed their first concept store HMVideal in Central. The 12,500 square foot store spreads over two floors in the Entertainment Building on Queen’s Road Central. Just as Wu mentioned, besides CDs and DVDs, the new store offers a much more comprehensive collection of books, magazines and vinyl records, as well as headphones and other entertainment-related products. It also features a café, radio DJ booth, and performance area for live shows.
It was quite a change for the traditional retail store that most people have known them for.
“The basic belief is that what HMV represents is a leisure opportunity for busy urban people,” says Robert Esser, CEO of HMV in Asia.
“This is relatively accessible, easy leisure. It\s music, movies, and other entertainment. It’s things that you can take in small bites on your own time. It’s also something that you can continuously enjoy. HMV also represents its brand DNA as a whole concept of entertainment.”
“I wouldn’t say it is much of a rebranding, but the evolution of it. It’s going to focus around lifestyle producs and other related producs that are relevant to the brand. We are doing a bit more with it and we are moving if forward, changing the core a bit. How we are going to represent that within next six, 12 or 18 months is sort of an evolving process.”
The Next Step
The HMVideal concept store has received positive response from the public so far, and the company is seeing many repeat custormers. With that success, the company is building a massive, new flagship store that will continue its new vision.
“Our big project now is the 14,000 square foot flagship that we are opening in Causeway Bay in September. That’s four floors,” Esser explains.
“Each floor has a different theme, but we will have entertainment and all of our core products, books, magazines, movies, DVDs, CDs and tons of vinyl, on the first floor. The second floor will be lifestyle products. The top floor will be 11,000 square feet of food and beverage, with live music, café, bar, and restaurants which will be opened all day from breakfast to midnight.”
They want the store to offer more than just a place to shop. They envision it to be a place for people to come and spend the day while listening to the catalog of music the company has access to.
“It’s really unique because where else can you go where you have a beer and someone else has a coffee? You can’t go to Starbucks because they don’t serve beer. Bars have coffee but you can’t really meet there at 11o’clock in the morning,” Esser says.
Like HMVideal, They’ll be holding live music shows in the flagship store in a much bigger space of over 3,000 feet, as well as the broadcasting their own radio programs from the DJ booth inside the store.
While the feedback for the concept store has been positive, there have been some issues, particularly in regards to marketing.
“I think the hurdle for this particular store that we’ve had since its launch is: number one, people don’t really understand what HMVideal is. And number two, they haven’t really publicized specifically what it means or what’s in here,” Esser says.
“I bet you can ask 10 or 15 people on the street what’s inside the store and how many are going to tell you that they have a bar where you can get beer at, very few. This is the issue.”
The CEO, who began his current role earlier this year, felt the past marketing efforts were done too creatively just for the sake of being creative. This time around, they plan to keep it simple and direct.
Battling the Digital Push
Esser describes his background as a “practical entrepreneur retailer.” So for him, the more space there is in the store, the more products can be put there to sell.
However, this is a real problem facing the current music and movie retail industry – the shifting demand from physical products to digital ones.
According to the International Federation of the Phonographic Industry (IFPI), 46 percent of the music industry’s revenues in 2014 came from physical format sales, down from 60 percent in 2011. In fact, last year was the first year that revenue consisted of the same proportion from digital channels and physical format sales at 46 percent, with digital growing 6.9 percent from 2013.
But there is a small bright spot. Although it only accounts to around two percent of the overall industry revenue, vinyl record sales steadily increased 54 percent last year. This growing trend is not lost on Esser and HMV.
“We are making a big commitment on vinyl. Right now we’ve got about a thousand new titles of vinyl [at HMVideal]. We are bringing another five and half thousand titles. So after the renovation of the vinyl room is done, there will be close to 6,000 titles of vinyl, both new and used. You will be able to buy, sell and trade.”
The Causeway Bay store will hold even more, ranging from 12,000 to 15,000 titles.
What the Future Holds
Esser says that giant flagship stores are a big part of the brand’s plans for the future. Seeing a decline of retail real estate throughout Asia, he believes this is the way for them to expand to other parts of Asia.
“This is going to be our pilot. I have really no doubt that it’s going to do well but it’s a question of how well and what specifically within it is going to do well. Because if you’ve got to fill out 15,000 square feet of lifestyle retail, what are you going to put in there? Some [ideas] would work and others won’t. After six months, we will have a good idea of what we are going to roll into it, or what we don’t.”
Besides keeping one of the largest international music and movie retailers in the city, the success of HMV might also encourage more private equity buyouts from Hong Kong and Asia.
“Actually you can say that Kelvin [Wu] and AID might be the first in Hong Kong to do something like this because previously, private equity-types of things like this in Hong Kong have either been sort of growth capital investment or pre-IPO investment,” Esser explains.
“But Kelvin came forward and did something fairly courageous. He bought this thing completely with the notion that organically, he was going to come in, fix it, sort it out and do something else completely with it.
“Is it going to be the trend? I don’t know. I certainly know Kelvin wants to do more of it. Whether or not other people do it I think, may to some extent, depend on the success of what we did with HMV. We invest in ourselves and we’re hoping to develop HMV into something really great.”